Renewables surge ahead as fossil-fuel firms adapt or die

Twenty years ago, renewable energy was a fledgling venture, regarded as fringe and experimental by many. Now it is a trillion-dollar industry.

Meanwhile many fossil-fuel firms are mired in debt and facing a rapidly falling market share, while others have gone out of business altogether.

It’s a dramatic turnaround that couldn’t have happened without global action by governments to work towards CO2 reduction, and inevitably, therefore, heavy subsidies – initially, at least.

But the dramatic scale of the growth in renewables has seen costs tumble and margins soar to the point where they have taken on life of their own.

No subsidies

In a sign of the times, five solar plants came on stream in Italy at the start of June, producing 63 megawatts of energy without any subsidies. Battery prices fell 35% last year, while electric car sales rose by 60%.

Additional renewable power capacity installed in 2016 set new records, with an extra 161 gigawatts – increasing global capacity by 9% compared with 2015, according to REN21, the Renewable Energy Policy Network.

In the UK, new government figures released on June 29 show renewable energy generated more than 25% of the UK’s electricity in the first quarter of this year – with onshore wind setting a quarterly record high, providing 8.3% of power.

Collapse of coal

The Carbon Clean 200 list – compiled in a bid to promote ‘clean capitalism’ – ranks the 200 largest companies worldwide by their total clean-energy revenues.

Its latest report (Q1 2017) makes stark reading for oil and coal investors. It claims that over the past six years, institutional and individual investors representing more than $5tn in assets under management have divested a portion of their fossil fuel investments – and are committed to divesting the balance in the next five years.

Coal, which accounts for more than 40% of global greenhouse gas emissions, is declining fast, especially in the US. Peabody Energy, the largest private sector coal company in the world, filed for Chapter 11 bankruptcy protection last April, following in the footsteps of Arch and Alpha. The Dow Jones Coal Index has dropped 82% over the past five years.

Oil companies are facing similar problems, according to the Carbon Clean 200 report. More than 50 have filed for bankruptcy since 2015, and more than a third of the world’s biggest oil and gas companies have huge debt burdens of more than $150bn. ExxonMobil has experienced a 45% drop in company revenue over the past five years.

Facing potential extinction, some are diversifying. In 2016 Royal Dutch Shell set up a New Energies division with $1.7bn of capital investment, which will be used for a new drive into wind power. BP is also diversifying into wind – it is one of the top wind energy producers in the US, operating 14 wind farms across eight US states.

Crescent Dunes solar farm near Las Vegas uses liquid salt to store energy for use at night Photo: Bureau of Land Management

By comparison, the world is currently adding twice as much clean power capacity as coal, oil, and gas combined, according to Bloomberg New Energy Finance (BNEF). Wind’s market share of power generation has doubled four times in the past 15 years, and solar has doubled seven times.

Companies that derive a significant amount of their revenue from environmental solutions now make up 5% of global investment indices, and the Clean200 companies have a collective value more than $1trn.

In its first live performance period from August 15, 2016 to January 31, 2017, the Clean200 generated a 2.9% total return, underperforming the S&P 1200 by just 1.26%. In the run-up to the US election from August to November, when a Trump win was viewed as unlikely, the Clean200 outperformed the S&P 1200 by one percentage point.

“Divesting from fossil fuels in favour of a clean energy future does not have to come at a sacrifice to long-term investment returns,” say Clean 200 report authors Toby Heaps and Andrew Behar.

But who is funding the renewables boom – other than the taxpayer? is it ‘old tech’ companies diversifying to protect shareholder value, or is it new startups cashing in on the opportunities as the old behemoths flounder?

There are plenty of big names in the Clean 200 list, with global giants such as Siemens, Toyota, Philips, Panasonic, Schneider and Bombardier dominating the top 10.

But there are others, too. Danish manufacturer Vestas, coming in at number 7 on the list, was founded in 1898. But in 1979 it saw the opportunities in wind power when the renewables industry was in its infancy, and is now one of the world’s largest producers of wind turbines.

The Macarthur wind farm in Australia Photo: Vestas Wind Systems A/S

Dong, which builds and runs wind farms, was founded in 2006 from the merger of six smaller Danish energy companies, and is now 11th on the list. Tesla, the electric sports car and battery manufacturer co-founded by Elon Musk, comes in at number 19.

Old and new players

“It’s a big mixture of existing companies divesting from fossil fuels into renewables and new players,” said Christine Lins, executive secretary of REN21.

“We see increased decentralisation of the energy sector going on, and for this to happen you will need both the conventional players with their know-how, but you will also need a lot of new companies being set up.

“In the last couple of years South Africa has developed a very successful renewable power-producer programme where several companies were set up and existing industry players from Europe went down there to set up joint ventures to produce equipment.

“We also have lots of new renewable energy companies that have established themselves in China, in Latin America and different parts of the world.”

Chris Hewett, policy manager of the UK's Solar Trade Association, said most of the capital coming into the solar energy sector was from specialist investors who are new entrants to the market, rather than fossil fuel companies diversifying into alternative energy.

He said large-scale solar energy production is now cheaper than fossil-fuel generation in the UK, and that provided long-term contracts are available, the removal of subsidies would have limited impact.

"There are, however, other government policies in terms of tax treatment, regulation, building standards, as well as access to electricity generation markets, that still need to be resolved before solar is competing on a level playing field," he added.

New ‘space race’

According to Clean 200’s Toby Heaps and Andrew Behar, China is the one to watch. Geographically, it takes the crown in the Clean 200 list, with 71 companies versus 41 from the US, despite the US stockmarket being more than twice the size of China’s.

Many of China’s solar energy companies are new businesses, although how much state help they are getting is unclear, given the regime’s lack of transparency.

“The key takeaway is that China continues to lead by investing in the clean-energy future while the US risks being left behind as the new administration looks to the past and talks up investing in coal and other fossil fuels,” say Heaps and Behar.

“The clean-energy ‘space race’ is on. It remains to be seen which country and which investors will prosper from it.”

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